It doesn't take a financial analyst to see that Gap is having trouble. Anyone on the retailer's e-mail list knows it by the heavy, almost desperate, discounting being done to lure shoppers.

Shrinking Sales Drag Down Stock

Gap is resorting to heavy promotions as it struggles to attract customers. After a weak third quarter, the rest of the year isn't looking good.

Source: Bloomberg

On Friday morning, Gap advertised 50 percent off for card members, plus free shipping on orders over $50, while Gap Factory stores plugged discounts of 50 percent to 70 percent off everything. Its Banana Republic chain has a 40 percent off promotion. Earlier this week, Gap and Old Navy online were offering the same discount.

It's not even Black Friday yet.

And unfortunately for Gap, the promotions aren't bringing in enough customers to offset the squeeze on margins. The $10.8 billion company said last night that its Gap and Banana Republic chains again suffered sales declines and that profit for the year will be as much as 15 percent below its prior prediction.

Gap's one bright spot continues to be Old Navy, whose same-store sales rose 4 percent in the third quarter. But Old Navy's president, credited with its success, recently left the company to run Ralph Lauren. It also doesn't help that after Gap and most clothing stores stocked up on sweaters and heavy outerwear, the weather has been atypically warm for the season.

So where does this leave Gap Inc.? Perhaps closer to takeover territory.

Despite Friday's small rebound, the stock has lost 37 percent in 2015, heading for its worst year-end return since the U.S. recession.

Gap's 2015 Drop in Value$7 Billion

The company is valued at a 28 percent discount to estimated revenue for its fiscal year ending in January and 5.2 times the consensus Ebitda forecast. That puts Gap among the cheapest U.S. apparel retailers.

Gap Shares Are Getting Cheaper

Here's how the company's valuation stacks up versus some peers.

Source: Bloomberg

*Total acquisition value relative to estimated Ebitda at the time the Ann buyout was announced

It's been considered a potential acquisition candidate off and on, but lately many private-equity firms have shifted away from large buyouts and instead gone into exit mode. It's true that Gap's size is a hurdle for a financial buyer, especially because these firms no longer team up for so-called club deals and have limited borrowing capacity. The targets have tended to be smaller lately, such as Ann Inc., the owner of Ann Taylor and Loft, which sold to Ascena Retail Group for about $2 billion earlier this year amid a challenging turnaround.

Even so, buyout firms are sitting on record levels of dry powder that at some point will need to be deployed. Retail has been a favorite area of theirs because of all the cash such businesses throw off. Gap's free cash flow yield is among the industry's highest at around 10 percent.

There's also Fast Retailing Co., the $42 billion Japanese company whose billionaire chairman has a goal of turning it into a world leader in apparel retail but has struggled beyond its home market. Some Americans might know its Uniqlo brand, though the company itself says it has "relatively low recognition" here. Fast Retailing has never really been taken seriously as a dealmaker that would have a major presence in the U.S., but it has the balance sheet to do something. In U.S. dollars, its cash and equivalents total $3.1 billion and it has little debt. (Gap has $1 billion of cash.) And if it's serious about a U.S. expansion, now would be the time to make a move, as so many retailers struggle and get cheaper.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.